Toyota, Honda brace for profit decline amid US tariffs and strong yen

Japan’s Toyota Motor and Honda Motor are expected to report a first-quarter earnings decline this week. Despite strong consumer demand for its hybrid units and in its critical markets abroad, the impact of the U.S. import tariffs and stronger yen will likely reduce its profits.

According to Bloomberg Intelligence, Japanese auto exports to the United States fell by 19% in June, marking the most significant drop since 2016. While both carmakers have a manufacturing footprint in the U.S., pressure from the tariffs is likely causing them to reduce shipments and reallocate their inventory.

However, a recent trade deal between the U.S. and Japan, which lowers tariffs on Japanese goods from 25% to 15%, may provide some relief. The lower tariff rate went into effect on Friday, Aug. 1.

Here’s why it matters:

Toyota and Honda are navigating the dual pressures of currency fluctuation and trade policy shifts at a time when global demand for electrified vehicles is accelerating. Their earnings results will serve as an early signal of how Japanese automakers may adapt their supply chains and pricing strategies in response to protectionist U.S. policies. The new trade agreement could help ease some cost burdens, but it also places greater scrutiny on future investments, production locations and the long-term viability of exporting from Japan to the U.S.

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Key takeaways:

• Toyota and Honda will likely report a decline in first-quarter profits
  A stronger yen and the impact of the United States auto tariffs will take a bite out of profits.
• The U.S.-Japan trade agreement lowers tariffs from 25% to 15%
  As part of the agreement, Japan will invest $550 billion into the United States, although the details surrounding the investment remain unclear. The lower tariff rate went into effect Friday, Aug. 1.
• Tariff pressure may accelerate nearshoring of vehicle production
  Faced with rising costs, Japanese automakers could continue expanding their North American operations to avoid long-term export volatility.
• Auto exports from Japan to the U.S. declined 19%
  Toyota and Honda have a manufacturing presence within the United States. This decline reflects a shifting production strategy as Japanese automakers navigate the tariffs.
• Japan was the fifth-largest exporter to the U.S. in 2024
  Last year, Japan exported roughly $150 billion in goods to the United States, making it a critical trading partner.